Protect Your Business from Bookkeeper Errors

Errors made by your bookkeeper usually show up as errors in your accounts.

These errors have flow-on effect of causing errors:

a. Payroll and Superannuation Errors – Entitlement issues, tax issues, long-service leave issues, being calculated and paid incorrectly
b. Compliance Responsibilities – Insurances, Taxes and Annual Returns etc being calculated incorrectly or submitted late
c. Coding Errors – Incorrectly categorising Income, Expenses, Assets and Liabilities can lead to incorrect profits and therefore incorrect taxes as well (this is particularly true for separating personal items from the business accounts). If you “spend” $8k on a race-horse it is not deductible as an “advertising” expense.
d. Decision Errors –looking at incorrect information can result in you making bad choices based on faulty reports.

So, it is important you making sure your bookkeeper is avoiding these top 5 mistakes.

TOP 5 Bookkeeper Errors

1. Leaving things permanently Unfinished

Problem: All your Bookkeeping is not completed each time, so some tasks are never being addressed. There may be one of two problems here (but rarely both) so either:

* there is too much work to be processed within the allotted time-frame
* your bookkeeper is inefficient

Solution: Check with your accountant how much time they estimate should be spent each week and then ensure you have the right resources for the right period to get the job done well.
A good bookkeeper will: Keep you abreast of unfinished tasks on a daily and weekly basis, be transparent about how work is prioritised, and request more hours or resources when things have grown.

2. Not Filing and Archiving

Problem: You are legally required to keep all your receipts and invoices for every single purchase and sale of all goods and services – these need to be held for between 5 and 10 years (depending on your legal jurisdiction). This is to support your case should you be sued or need to sue someone else, and to justify to the Tax Man any claims you may make.  If you don’t have the documentation to back it up, you may be denied your claim and fined.
Solution: Include accurate and timely filing of paperwork (including online receipts records etc) as part of the Bookkeepers Job Spec “Create and maintain a document filing systems which ideally will be simple and preferably paperless with back-ups”. Most current Accounting Programs enable scanning and uploading of paperwork within a relevant spot electronically.  This saves on physical office-space, irrespective of paper or not, make available enough folders, filing cabinets, software etc to do this job well.
A good bookkeeper will: Enable you, and your accountants, or tax auditors, to have easy access to any information as required.

3. Ineffective Reconciling

Problem: The reconciliation is a comparison between what you actually have and those recorded in the system.  In the case of the bank reconciling compares your accounts to the Bank Statement, in the case of your Stock, it compares your Accounts to your physical stock on hand.

Whilst the main Bank Account may be regularly checked the rest of your Asset and Liability accounts are not reconciled for long periods of time, if ever.

Also, if you see reconciliation adjustments, your bookkeeper is doing something wrong – adjustments only occur when the actual error is not located and amended properly.
e.g. Recently a bookkeeper did not reconcile the Tax Office Account; as this client had a running balance that was being paid off the Tax Man was happily charging interest and penalties that were not showing in the Accounts. The client thought it was a free loan and prioritised the Tax re-payments last – but once the account was reconciled he became aware of the large interest rate, he was able to re-prioritise accordingly.
Similar errors are also very common for Leases and Hire Purchases, as well as inter-entity loans where the Government requires interest to be charged.
Solution: Ever thing you Own and Everything you Owe must be accounted for and up to date. Stock-take regularly, review Assets and if you replace them make sure the old ones are out and the new ones in, make sure your Loan Accounts all agree to the statements you receive, including your lease statements.
A good bookkeeper will: Balance all the Books at least Monthly, checking every Balance Sheet item, not only the Cash ones.







4. Not Working WITH your Accountant

Problem: Your Bookkeeper is most likely, not as qualified as your accountant, which means they don’t necessary know how to correctly handle everything.

Bookkeeping is roughly 90% repetitive and 10% complex transactions.  It is this 10% complexity where most of the errors occur and unfortunately this has two major impacts on your accounts:

* Usually these complex transactions are also the larger financial ones – so errors here create larger skews in your reports
* Because of the complex nature, most business owners remain unaware of errors and without a vigilant accountant the mistake can remain unchecked

So when it comes to that complex 10% a bad bookkeeper might be guessing, thinking ‘near enough is good enough’, or perhaps ignoring issues and omissions.

Solution: Enable strong lines of communication between your Bookkeeper and Accountant.  This will save you money in the long run. The more work bookkeepers complete at their lower rates, the less has to be done by the Accountant at a higher rate
A good bookkeeper will: Check all work for errors and typos by reviewing your Reports regularly (at least monthly). AND informing your accountant when complex transactions occur will ensure both the Bookkeeper and Accountant agree on how to process these correctly. This includes working with the Accountant to incorporate any Year End Adjustments.

5. Not monitoring Cash-flow

Problem: Cash-flow is the life of any business, ensuring your Debtors pay you promptly and your bills are paid on time is a key part of this role.  So if your bookkeeper is not paying attention to getting the cash in and metering the cash out, you can easily end up insolvent.
Solution: make sure the following tasks are completed as often as possible (daily is best, weekly is OK, and monthly is the minumum):

– CASH IN: Invoicing, Debt collection and Receipts processing
– CASH OUT: Purchases (and Purchase Orders if required) are entered into the system as Accounts Payable when they are made with due dates (and paid the day before due)
– CASH AVAILABLE: Bank Account and Credit Card reconciliations to ensure every transaction is up to date

A good bookkeeper will:regularly update you with the current cash position, create room for cash contingencies, and help you plan for the cash requirements of further business development.

Step-by-step of what to do NOW

Inform your bookkeeper of your new-found interest – and that you are looking for their assistance and advice to improve things; this includes ensuring you have full access to your own accounting system any time you like.

Ask your bookkeeper to list any problems or issues – areas of your accounts or systems that may need some more work or help, why they are currently an issue, and what fixes are in progress.

Start doing some checking for the Errors – Start doing some checking for the Errors Listed in 1-5, and also check the extent and severity of the issues are that have been listed by your Bookkeeper. It may also be worthwhile to ask your accountant if they have noticed any areas that could be improved.

Work with both your Bookkeeper and Accountant to resolve the problems once and for all – if there are issues fix them rather than ignoring them (any upfront cost of these changes will most likely be cheaper than continual rework by your Accountant at year-end for years to come).

Continue to check and monitor – always – regular and spot reviews are needed for as long as you remain in business.

IMPORTANT Note:

The above pointers will probably not uncover or identify theft, nor any other deliberate or intentional fraud
This article only relates to unintentional, and easily avoidable bookkeeper errors.
Lack of honour is a completely different kettle-of-fish that is unlikely to be highlighted by any of the above.

However, if you Bookkeeper is uncooperative, secretive, or defensive when you begin to take an interest in your own accounts that may indicate a bigger problem altogether. So, if you do have concerns about honesty or integrity I suggest you get your work re-checked by your accountant AND ask your accountant for advice on how to establish stronger segregation of duties, hierarchy of financial access, and other internal controls that will help protect you from these nasty circumstances